Wealth vs. Job Creation

Last week, Apple Computer raised a few eyebrows in announcing it will build more of its computers in the US. Apple is well known for building many of its products at Foxconn factories in China. These workers toil for pay that most Americans would not accept. A typical factory worker in the US earns ten times that of his Chinese equivalent, so how can Apple afford to build in the US? The logic behind Apple’s move is revealed by the number of US hires – only 200 or so. 200 jobs does not put any kind of dent in the US unemployment problem, but it does show how US labor productivity creates wealth.

It takes thousands of Chinese to assemble apple’s products, but it takes only 200 Americans to do the same. The difference is the investment in highly automated factory equipment in the US. When investing millions per employee in automation equipment, the tenfold labor cost difference becomes trivial when locating a new factory. While the US has an entitled and overregulated labor force, it is mostly free of China’s rampant graft problem. Private property is generally not subject to seizure, so factory assets are safe. In the US, unlike China, trade secrets such as how the automated machinery works can be kept safe. All this plus the avoidance of tariffs and international shipping make a large investment in the US perfectly logical.

Still Apple is creating only 200 new jobs. That can be dismissed as a publicity stunt or simply insignificant compared the US’s many problems. Apple’s goal is wealth creation – in particular for its owners, but also for its customers. The factory will create wealth in the form of computers that can be used to create more wealth. There are many nations with nearly full employment, but they do not compare to the US because their jobs create minimal wealth. Only wealth creation creates prosperity; jobs are a byproduct of wealth creation, not vice versa.

Nearly all politicians talk about creating jobs, pandering to the populist notion that jobs drive the economy. Supposedly no matter how a job is created, people’s lives get better. When Pres. Obama talks about creating “green jobs,” he is really talking about the destruction of wealth to pay for the jobs he wants. By taking resources that could be used to create factories like Apple’s and redirecting them toward windmills and solar cells that do not work very well, wealth is destroyed. It is easy to count the number of subsidized and unsustainable ‘green jobs,’ it is harder to see the productive Apple-like jobs that weren’t created for lack of capital.

Apple is likely to invest something like $3.8 million per job at its new factory, while Obama’s stimulus spent only $787,000 per job. Doesn’t that make government jobs more efficient? The difference is that Apple has calculated that its investment will create wealth, while the government knows nothing about the concept. Private sector investment in jobs is much more likely to create wealth than politically directed spending made-up to resemble investment.

The Old Media sometimes gets wealth creation vs. job creation partly right. They sometimes refer to ‘good jobs,’ such as the ones the Keystone XL Pipeline would create. To them ‘good jobs’ mean high paying, high skill jobs, but that is simply the flip side of wealth creation. A job pays well because of the wealth it creates, so skill simply refers to how much value a job has. The classic example is the man with a shovel vs. the man with a hydraulic back hoe. The back hoe job is much easier work, but it also pays much more because the back hoe allows the worker to create more wealth (by moving more dirt). The back hoe may put 100 men with shovels out of work, but it creates more wealth, which is the goal.

By focusing on wealth creation (i.e. profit) instead of job creation (i.e. consumption) people from back hoe companies to Apple Computer might appear to be creating scant employment, but in reality they create all the material benefits taken for granted by people who demand ‘jobs.’ So cheers to the crafty people who seek wealth creation, and not so much for the politicians who destroy wealth to simply create jobs.